This federal tax credit encourages people to make energy-conscious purchases that improve the energy efficiency of their home. It is an up to $300 credit you can get for the purchase and installation of a qualifying biomass-burning stove or fireplace insertbetween January 1, 2012 and December 31, 2013. Biomass simply means the stove uses wood or pellet fuel.

What is the difference between a tax deduction and a tax credit?

A deduction is an expense or amount you can subtract from your taxable income. A tax credit lowers your actual tax bill dollar-for-dollar, in this case by up to $300. In general, a tax credit is more valuable than a similar tax deduction.

How is the value of this tax credit determined?

When you purchase and install a qualifying biomass-burning appliance between January 1, 2009 and December 31, 2010, you get a tax credit of 30% of the total price, up to $1,500 dollars. So, for example, if your wood or pellet stove cost $5,000 (which can include installation), you can deduct $1,500 from the taxes you owe the government.

What appliances qualify for the tax credit?

Any wood- or pellet-burning stove that meets the 75% efficiency rating qualifies for this credit.

Manufacturers test their products to certify they meet this efficiency standard and the IRS-required certification will come with the product straight from the appliance manufacturer. Visit your local specialty retailer who can explain which products they have will qualify for the tax credit.

Are biomass stoves installed in new or vacation homes covered by this tax credit?

Save your receipt that proves you purchased the qualifying appliance between January 1, 2009 and December 31, 2010. You'll also need a manufacturer's certification statement that states your product meets the 75% efficiency rating needed to qualify for this tax credit.

Your specialty retailer will give you the manufacturer's certification statement that must include: